Inflation 'weak' despite fuel prices

Rising fuel prices are likely to have pushed up the cost of living in recent months but inflation remains firmly in check, according to economists.

The Consumer Price Index for the three months to June is released on Thursday morning.

Fuel is predicted to make up much of the cost of living increase in the last quarter. Photo: RNZ / Alexander Robertson

A Reuters news agency poll is picking inflation will have risen 0.6 percent in the quarter, and 0.4 percent for the year - well below the Reserve Bank's target of 2 percent

The Reserve Bank is forecasting weaker price growth 0.4 percent in the quarter, and 0.3 percent for the year.

A senior economist at Westpac, Michael Gordon, says the sharp fall in fuel prices at the beginning of the year has largely been reversed.

"We see fuel contributing about 0.5 of that 0.7 (percent increase) that we're expecting for the quarter."

But he said inflation pressures remained weak and the effects of a falling dollar would take some time to be reflected in higher import costs.

"That's probably more a story towards the end of the year, early next year before we really start to see a pick up in imported inflation."

Mr Gordon expected annual inflation to remain below 1 percent for the rest of year, helped by the cut in ACC levies on car registrations.

He said the Reserve Bank could afford to cut interest rates from 3.25 percent to 2.5 percent without igniting inflation pressures.

"We're seeing a few more signs of the local economy losing a bit of momentum recently and I think that will play on the Reserve Bank's mind too, because that in turn suggests would suggest less locally generated inflation."